Mortgage demand fell for the second week in a row, as low inventory and high home prices continue to weigh on the housing market.
Mortgage applications decreased 1.8% last week, according to the Mortgage Bankers Association’s seasonally adjusted index, falling to the lowest level since the beginning of 2020, before the coronavirus pandemic started to take a toll on the economy.
Both refinance and purchase applications took a hit, even as mortgage rates slipped.
Mortgage applications to refinance a home dropped 2% for the week and were 8% lower than a year ago. Refinance applications have trended lower than 2020 levels for the past four months, according to the MBA.
Home purchase applications dropped 1% for the week and came in 14% lower than a year ago.
“Swift home-price growth across much of the country, driven by insufficient housing supply, is weighing on the purchase market and is pushing average loan amounts higher,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.
Falling mortgage rates didn’t spur demand. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) dropped 5 basis points to 3.15, with points decreasing to 0.38 from 0.39 (including the origination fee) for loans with a 20% down payment.
Mortgage rates loosely follow the yield of the 10-year Treasury. Mortgage rates dipped despite good economic news, Kan added.
“Treasury yields have been volatile despite mostly positive economic news, including last week’s June jobs report, which showed ongoing improvements in the labor market. However, rates continued to move lower – especially late in the week,” he said. “The 30-year fixed rate was 11 basis points lower than the same week a year ago, but many borrowers previously refinanced at even lower rates.”
New York State Governor Andrew M Cuomo has launched a $9 million fund to support research into ways of capturing atmospheric carbon and turning it into useful products.
The Carbontech Entrepreneurial Fellowship Program will provide technical expertise for “carbon-to-value” technology that stores captured CO2 in physical objects.
The programme is part of the state’s aim of becoming a leading hub for carbontech businesses as well as supporting its goal of reducing its greenhouse gas emissions by 85 per cent by 2050.
“Revolutionizing the development of products made from carbon capture will create the landscape to achieve deep decarbonization in our fight against climate change,” Cuomo said.
“Attracting scientists with cutting-edge skills and knowledge to realize new products is essential to growing our green economy, and we are bringing their research out of the lab to pave the way for a more climate-resilient future to benefit all New Yorkers.”
Programme commercializes removal of CO2
The programme is part of a burgeoning “carbontech” sector that aims to commercialize the removal of atmospheric CO2, which is the main cause of climate change.
Players include Finnish company Solar Foods, which plans to make food from captured carbon, and Australian company Mineral Carbonation International, which turns CO2 into construction materials.
Other carbontech companies include Canadian company Carbicrete, which makes concrete from CO2, and Dutch brand Made of Air, which makes bioplastic from carbon-rich farm and forest waste.
Carbon capture key technology in the fight against climate change
The Carbontech Entrepreneurial Fellowship Program will be administered and funded by the New York State Energy Research and Development Authority (NYSERDA).
“By focusing on bringing together novel ideas with entrepreneurs, we are fostering a new pipeline of sustainable, emission-reducing products that will help New York shrink its carbon footprint and build healthier communities,” said NYSERDA President and CEO Doreen M Harris.
“Carbon-to-value” is a similar concept to carbon capture and utilization (CCU), which is emerging as one of the key planks in the fight against climate change. It involves capturing carbon from the atmosphere and turning it into useful objects that double as long-term stores for the element.
Atmospheric carbon can be captured using direct air capture machines, such as those developed by Climeworks. It can also be captured naturally in biomass including trees, hemp, bamboo and algae.
Earlier this year Elon Musk launched the $100 million XPrize Carbon Removal competition, which calls for new devices that sequester carbon dioxide.
“Decarbonization a top priority”
The New York State fellowship programme follows April’s launch of the $10 million Carbontech Development Initiative, a programme “to establish New York State as a world-class hub of carbon-to-value research, technology transfer and commercialization.”
“Capturing carbon and using it requires innovation, and this program will enable us to work with industry leaders who possess the necessary knowledge, technology, and vision,” said Cuomo in April.
“If we want to reach our ambitious goal of creating a greener, cleaner future for all New Yorkers, we need to make decarbonization a top priority. The Carbontech Development Initiative will help us to establish this innovative practice right here in New York, while simultaneously fueling economic growth and community engagement.”
New York City’s greenhouse gas emissions were visualized in a groundbreaking animation by graphics firm Real World Visuals.
Released in 2012, the computer-generated timelapse shows the city being buried under a mountain of bubbles representing the city’s 54 million tonnes of annual CO2 emissions.
While there has been uncertainty around the future of office real estate as a result of the pandemic, the asset class is performing better than some have expected. As the vaccine continues to become more widely distributed, utilization rates in office space continue to steadily increase. More than 95 percent of employers are anticipating a nearly full-return to office, which is significant considering occupancy was less than 50 percent in June of 2020. Life science and medical office space in particular, which provide the most stability during times of economic downturn, have been helping to bolster office performance. IIn this article we will cover:
The office industry and the case for investment in this asset class
The progression of modern office space
Life sciences and the impact Covid-19 has had on the industry
The evolution of the life science industry since the early 2000s
The future of office and the life science industries
COUNTERINTUITIVE: WHY YOU SHOULD INVEST IN OFFICE RIGHT NOW
During the pandemic, companies around the world had to switch from collaborative office environments to remote working. An estimated 62(1)percent of employed Americans worked at home during the crisis, compared to 31 percent prior to the pandemic. The resulting rise in U.S. office vacancy rates and the declining average gross asking rent caused concern for the future of office real estate.
According to CoStar, office-using employment fell 7.8 percent from February to April of 2020, but then increased by about 5.5 percent during the summer. The result was that office-using employment was only down about 2.8 percent from the February peak. Despite widespread fear of vacant offices, as of Q2 2021, the office vacancy rate exceeded 12%, up 2% year-over-year.
The reality is that while there has certainly been an impact on occupancy, the office sector is not only a safe bet, but continues to be a strong investment option. It is predicted that employees will be returning to office space earlier than anticipated. During his discussion with Willy Walker in Q4 2020, Owen Thomas, CEO and Director of Boston Properties, predicted that occupancy of his own buildings could be up to 20 percent by the end of the first quarter 2021, 50 percent by Labor Day, and up to 75 percent by the end of the third quarter.
Additionally, niche office sectors, such as life science and medical office which remain stable even during economic downturns, have bolstered the office market’s strength.
EVOLUTION OF OFFICE SPACE: NEW OPPORTUNITIES
Studies have shown that employees are eager to return to the office, but changes will need to be made to accommodate the evolving needs of tenants. According to a survey conducted by Deloitte, 68% of employers plan to implement some type of hybrid workplace model in 2021, while only 1% will remain fully virtual. With hybrid work schedules and increased flexibility, there will need to be more incentive for employees to make the trek into the office.
Additionally, the role of office space is shifting toward community and collaboration. Employees will re-enter the office as a means to build personal and professional relationships and connect with the culture, purpose, and mission that the company has to offer.
Investors and developers have an opportunity to reposition office space and gravitate toward a space that reflects the needs of the future. Physical and virtual experiences must be fully integrated into office space to ensure connectivity among all employees. Just as new technology must be integrated into the office space, companies need to invest in home tools and resources so that collaboration is seamless regardless of physical or virtual presence.
93% of people believe that a sense of belonging drives organizational performance (Deloitte 2020 Human Capital Trends). The future of office space will require a design that encourages reconnection, community, and inclusivity. The most successful office spaces will be ones that fully embrace the collaborative environment that corporate America is gravitating toward.
LIFE SCIENCE
COVID-19 ’S IMPACT ON THE LIFE SCIENCE INDUSTRY
Life Science companies are now at the forefront of public interest because of Covid-19 and the rush to develop a vaccine. As the life science industry continues to display remarkable resilience amid the economic downturn, investors and developers have a heightened interest in the space. As a result, institutional investment in the space has been growing at 15 percent per year, totaling more than $6 billion in 2020.
The need for more life science space also creates the need for new construction, as not all office buildings are capable of housing life science tenants due to the demanding lab requirements including high floor loads to handle equipment, proper ventilation, and safety infrastructure.
Buildings are constructed for a specific use, and traditional office structures have a predetermined capacity of weight the building can withstand. While traditional office spaces tend to use lighter materials and can therefore easily accommodate a variety of tenants, life science lab materials include heavy equipment, specific electrical wiring, complex systems, and more. If a building can structurally withstand the load bearing requirements, they can potentially redevelop space to fit a life science tenant’s needs. Still, significant capital expenditures would also need to be invested. If the life science company requires a more traditional or medical office space, such improvements are easier to accommodate.
Although it may seem as though investors and developers are now hopping on a hot trend, the life science industry has been experiencing exponential growth since the early 2000s.
LIFE SCIENCES SINCE THE EARLY 2000’S
An emphasis on individualized and preventative treatment has been a powerful driver of the life science industry for nearly two decades. The sector has also benefitted from technological advances in medicine, changes in healthcare delivery mechanisms, and an aging population. As this demand has grown, so has employment. Since the end of 2013, the number of life science jobs has increased by 70,000 jobs per year.
Life science tenants have proven to be resilient. Even during both economic downturns since 2000, life science industry employment has continued to increase. The powerful drivers of life science industry growth support lab space even during a recession. A high importance is being placed on life science employees, as their average salary has experienced more than 19 percent growth in the last five years. In this same time span, the total number of life science institutions has increased by more than 13 percent, further solidifying the industry’s value (1).
OUTLOOK ON LIFE SCIENCE
The world population continues to grow and age, and there is no shortage of diseases that plague the human population. As the need for treatment, cures, and innovations continues to grow, venture capital investment in the space will continue to increase as well. Investment from government grants and large pharmaceutical companies will also help stimulate the sector and stabilize it during turbulent cycles.
Since custom buildout for life science space requires significant capital, landlords can command higher rents compared to traditional office. As a result, there are high barriers to entry within the life science market. The recent modernization of zoning regulations throughout the U.S. have led to an increase in life science developments. From 2009 to the end of 2019, the amount of lab space in the United States grew from 17 million to 29 million square feet (1). To put that in perspective, the New York office market alone contains 1.4 million square feet.
There is a high demand from institutional capital looking to get into these high-demand markets. From a capital perspective, there will continue to be a massive flight of investment capital from real estate ownership to invest and own properties in the space.
Life science industry growth is aligned with global healthcare expenditures which are expected to rise at a rate of 5.4 percent annually, from $7.7 trillion in 2017 to an anticipated $10.1 trillion by 2022 (2). Additionally, revenue in the industry has been growing at a steady pace throughout the past decade.
Based on the trajectory that the life science industry has had since the early 2000s, along with the newfound recognition of its true necessity post Covid-19, industry growth is expected. Consult with our New York Capital Markets experts for your life science or office industry questions or transaction needs.
The intense and prolonged seller’s market has had a profound impact on Americans buying and selling homes this year. An incredibly low supply of available homes has persisted throughout the U.S. and historically low mortgage rates continue to encourage new potential buyers to enter the market – despite the competition. If homeowners thinking about selling their home, now is absolutely the time to do so.
Housing
Listings are still down, despite the market conditions that are incredibly favorable for selling a home.
Comparing year-to-date Bright MLS cumulative listings hitting the market in 2020 and 2021 (covering most of the mid-Atlantic region and the entirety of Houwzer’s Philadelphia, Baltimore and DC region footprint), both years started out on a fairly similar trajectory, but starting in February 2021, listings fell behind.
By early April 2021, though, listings picked up pace and exceeded the year to date listings total of the same period the year before. This is not too surprising given how much real estate activity fell off during the early days of the pandemic.
PROMOTED
What is somewhat surprising is that 2021 so far has not seen significant listing gains compared to 2020, especially because the market conditions to sell a home have never been better and this is in comparison to the worst periods of the pandemic shutdowns.
It is somewhat shocking that more homes are barley coming to market vs. what occurred during a (hopefully) once-in-a-lifetime pandemic, despite massive year-over-year increases in buyer demand and the pandemic winding to an end. It’s worth mentioning that this could be due, in part, to the prolonged period at home and the shift to remote work in 2020. Many who planned to move this year might have already done so.
Cumulative New Listings Jan-Apr 2021 vs. Jan-Apr 2020
Cumulative New Listings Jan-Apr 2021 vs. Jan-Apr 2020 HOUWZER
Market Performance Breakdown
Philadelphia, PA: Median sale prices are up 16.7% year over year in Philadelphia and inventory is at 1 month (down from 4.8 months same time last year)
Washington, D.C.: Median sale prices are up 10.1% year over year in DC and inventory is 0.8 months (or ~24 days, down from 1.9 months same time last year)
Baltimore, MD: Median sale prices are up 10% year over year in Baltimore and inventory is 0.9 months (or ~27 days, down from 3.2 months same time last year)
Orlando, FL: Median sale prices are up 13.5% year over year in Orlando and inventory is 1 month (down from 4 months same time last year)
Tampa, FL: Median sale prices are up 18% year over year in Tampa and inventory is 0.8 months (or ~24 days, down from 3.7 months same time last year)
At this point, there is double digit year-over-year median list price appreciation in the Mid Atlantic and Central Florida markets, and inventory is at almost the minimum levels mathematically possible across the board.
Anecdotally, increasingly desperate tactics from would-be buyers are becoming the norm: “love letters” from prospective buyers to owners of homes not on the market persuading them to sell, buyers waiving all contingencies including inspection, and buyers submitting multiple offers concurrently on multiple homes knowing they will most likely miss out on all of them.
The buyers/sellers housing market chart HOUWZER
The good news is that this is not in stagnant market, so listing inventory only needs to tick up in order to get to optimal conditions. The current market situation is kind of a form of a Prisoner’s Dilemma. One of the reasons listing inventory is so low, is that homeowners are stuck in their homes because it’s so difficult to purchase a new one. However, this is a circular problem that requires cooperation to solve. If those “stuck” homeowners all listed their home at the same time then the inventory problem would be solved, and they’d also be able to easily buy in a healthy market with a balanced amount of buyers and sellers.
It is–without a doubt–the best time in history to be a home seller in any of these markets. And if homeowner does decide to sell, and others decide to do the same–it will also help them buy a home by increasing inventory.
Mortgage
The other silver-lining: after briefly ticking up, mortgage rates are trending back down toward historic lows, slightly increasing home buyer purchasing power versus a month ago:
While this is good news for anyone hoping to keep their monthly mortgage payments down, it will do little to cool the white-hot market. If and when mortgage rates finally begin to rise significantly, there will likely be some reduction in demand.
Conclusion
If homeowners are in a position to buy and sell a home, now is an ideal time to do so. Despite the difficulties buyers may encounter, there are two important factors working in their favor: extremely low interest rates, and a strong seller’s market in which to sell the existing home.
Potential tax reform and rising inflation may slow down the booming market. Assessing the proposed tax legislation and current market conditions, our crystal ball will help you plan for what’s next.
Right now, trying to predict the impact of federal tax changes on the residential real estate market is a guessing game. “Since no bills have been introduced yet, it’s hard to speculate on some of the effects without details,” says Selma Hepp, Ph.D., Executive, Research and Insights and Deputy Chief Economist, CoreLogic. That said, by assessing the proposed tax legislation in The American Families Plan (AFP) plus current market conditions and possible inflation through the lens of historical market trends, housing economists and Realtors have come up with some solid predictions. Read on for their prognoses regarding various aspects of potential tax reforms.
Increase in Personal Income Taxes and Capital Gains for Higher-Net Worth Individuals
The Tax Cuts and Jobs Act (TCJA) of 2017 reduced the top income tax rate from 39.6% to 37%. Reversing this change (for the top 1%) is a central aspect of the Biden administration’s proposed tax changes, as is ensuring that capital gains are taxed at the same rate as wages (39.6%) for households making $1 million plus.
“There was a real estate boom, and it could end with this type of tax change,” says Daryl Fairweather, Chief Economist at Redfin. “Right now, the housing market is dominated by the wealthy,” she explains. “If we change the structure to tax the wealthy more, they will have less money to spend on real estate and won’t compete as much with middle class buyers.” Investor profits could decrease, as could the rate of home value growth. “Right now, there’s not enough supply,” says Jack Fry, broker-owner of RE/MAX of Reading in Pennsylvania. “However, when demand shuts down and if capital gains taxes increase, investors will find other places to put their money.” On the pro side, though, this type of tax reform could level the playing field for the middle class, says Fairweather.
Reversal of the SALT Deduction Limitation
At this point, the Biden administration has offered no indication that they plan to reverse the $10,000 state and local property and income tax (SALT) deduction cap, which punitively affects states with higher taxes (such as California, New Jersey, and New York). According to Dr. Hepp, “The SALT deduction cap did end up having an impact on sales activity of homes that were on the margin, such as those priced between $1 million and $1.5 million in the Bay Area, as those households saw a material impact on their tax bill and had relatively ‘limited’ income [for that area]. The same could be said for some markets in the Northeast, such as Connecticut.” On the slim chance that the Biden Administration does reverse this deduction limitation, the migration from high to low tax states (such as Florida and Texas) might abate, says Fairweather.
Elimination of Stepped-Up Basis for Gains from Estates
The Biden administration aims to eliminate a provision that allows heirs to rebase inherited assets, thereby avoiding capital gains tax. Specifically, limiting the practice for gains over $1 million ($2.5 million for couples), this could encourage heirs to hold on to inherited homes instead of selling them, says Fairweather, though she doesn’t foresee a major impact on the market.
End of 1031 Like-Kind Exchanges
Moreover, the current administration proposes to end another tax break, which lets real estate investors put off paying capital gains taxes when they exchange one property for a similar property (proposed legislation would apply to gains greater than $500,000). “This would have an extremely negative effect on commercial investments,” says Cathy Kennelly, co-owner and Certified Distressed Property Expert, Signature Realty Associates. “It could be disastrous for a real estate sector that is just starting to recover.” This could encourage investors to hold onto real estate longer instead of selling and buying again, which would reduce inventory at a time when inventory is already reduced, says Fairweather. It could also decrease incentives to become an investor, she adds.
Closing of the Carried Interest Loophole
Many private equity firms invest in real estate — and have been benefitting from a tax break that allows them to reduce capital gains taxes, explains Fairweather. By closing this loophole, such firms might decrease their investment in real estate, which could reduce values of high-end homes and decrease competition for homes, making them more accessible to middle- and lower-income individuals. “Overall, this could be good for middle-class homebuyers who want to live in these homes and not that great for investors and the wealthy,” she says.
The Big Unknown: Inflation
Upping taxes should give some headwind to inflation, says Fairweather, who feels that the price increases we’re seeing are more of a one-time adjustment. As an example, despite the large increase in home prices, there are already signs that housing price increases could slow down, she adds. Plus, wages are rising, which would balance out increasing prices. So, inflation may impact real estate.
Housing has been a relatively good inflation hedge, according to Dr. Hepp. She points to a CoreLogic blog post, which compared home prices with the consumer price index over a long period of time. According to CoreLogic’s Chief Economist, Frank Nothaft, in general, stock market values have grown more than home prices since 1946 and home prices have increased slightly faster than inflation.
While higher inflation would probably increase the rate of home price appreciation, Dr. Hepp continues, it could also mean higher mortgage rates. Indeed, “Inflation can be a double-edged sword,” says Kennelly. “Your house is worth more, but it would cost more to purchase, which could hinder ‘move-up’ buyers. If interest rates trend higher, it would be an additional concern.” Still, she adds, “There is currently strong demand for homes, which could remain for some time due to the huge population of Millennials, who need homes.”
Cindy Ariosa, senior vice president, regional manager, Long & Foster Real Estate, Chantilly, Virginia; liaison for large firms and industry relations, the National Association of REALTORS® (NAR): For a variety of reasons, the coronavirus pandemic put vast numbers of Americans on the move. March 2021 existing-home sales were up more than 12% compared with March 2020. How long the upward trajectory will last is debatable. But one thing is certain: REALTORS® are fiercely alert to any legislative changes that could impact the industry. Six months into the Biden administration, we’re exploring a few of the issues that matter most to individuals and investors. High on the list is the 1031 exchange, so let’s start with that.
Shannon McGahn, chief advocacy officer, NAR, Washington, D.C.: The 1031 exchange allows investors to defer paying capital gains on the sale of a property if the proceeds are reinvested in another similar property. It has been part of the IRS code since 1921, and for decades, it has brought immeasurable revenue, jobs, investment and economic benefit to the U.S. President Biden’s plan would limit the tax deferral to transactions less than $500,000, and if wealthier investors choose not to sell, it could temporarily keep properties off the market. It’s important to remember that it’s a deferral, not a tax cut or loophole, and when we educate lawmakers on its impact on real estate and community development, they understand its importance very quickly.
Chris Trapani, co-founder/CEO, Sereno Real Estate, Los Gatos, California: Historically, more restrictive and excessive taxes on real estate disincentivize people from selling, which contributes to the lower inventory condition. Lower inventory then adds pressure, causing values to rise, thereby negatively impacting affordability. The 250K/500K exclusion for primary residences, which replaced the rollover of any level of gain provided a primary residence of equal or greater value was purchased within two years rule in 1997, is a perfect example. In the Bay Area, any owner looking at profits exceeding $250,000 for singles and $500,000 for couples is disincentivized to sell, which has contributed to the problem of low inventory and lack of affordability overall. Therefore, if the 1031 exchange goes away, fewer people would sell, and we’d have even less available properties for sale.
Jon Coile, vice president, MLS and Industry Relations, HomeServices of America, Annapolis, Maryland: There have been rumors for decades about the demise of the 1031 exchange, but there’s too much resistance for that to happen. Yes, it helps the affluent, but there are plenty of average people out there who own a couple of rental properties or maybe a little strip mall, and it helps them, too. In any case, coming out of COVID may not be the best time for a lot of investors to change where their money is invested. I don’t see much happening on this until after the pandemic is over.
CA: And the larger issue of capital gains?
JC: If you learn from history, you know that everything is doomed to repeat. In past years, when the capital gains tax went from 20% to nearly double that, there was little impact on any but the richest Americans. Today, we again have a 20% rate, which Biden proposes to double. But once again, there will be little or no impact on anyone earning less than $1 million a year—and only 0.03% of Americans earn that much.
CT: The administration has repeatedly said that the president does not intend to raise taxes on anyone earning less than $400,000 a year, and this capital gains tax plan kicking in at $1 million seems to honor that.
SM: If you double the capital gains tax for sellers, the wealthiest can afford to wait. We educate lawmakers as to the fact that raising the capital gains tax could actually reduce revenue, not bring more in.
CA: What about the first-time homebuyer credit?
SM: Biden’s call to provide a $15,000 tax credit for first-time homebuyers, or up to 10% of the purchase price, is now a bill in Congress that would clearly incentivize more millennials and minorities to jump into the market. In addition to increasing affordability, it could help increase inventory if new tax incentives encourage investors to convert unused commercial properties into residential.
CT: Any time supply is suppressed, values appreciate faster, which we are seeing today—and which prices people out of the market. This tax credit will increase affordability. It’s a great solution for leveling the playing field for buyers.
JC: We are excited about it because it’s cash that turns up on the settlement table to make the home purchase possible. Buying a house is the single biggest investment for most people, and we are in the enviable position of helping them get into the homes that will help them build a nest egg. What I love about Biden’s goal is that increasing affordability extends the opportunity to build wealth for so many more people, especially the underserved—and we can help make it happen. What a noble profession we are in.
An East Hampton property that has been off the market for 75 years has just been listed for a whopping $69 million.
Named Cima Del Mundo, which translates to “Top of the World,” the Spanish-Colonial estate was initially built in 1925 and underwent design renovation in 1994, according to the Real Deal.
Made up of eight bedrooms and 7½ bathrooms, the compound sits on 2.7 acres of land and boasts 400 feet of ocean frontage on Georgica Beach.
The home was designed for indoor and outdoor living. Upon entry, a tiled foyer with a curved staircase can be seen with redefined finishes, the listing states. Interior features include an expansive eat-in kitchen, a study, a double-height living room and five fireplaces.
The home is listed for the first time in 75 years.
The foyer. Via RealtorA hallway with a series of perfectly designed Spanish doors for easy outdoor/indoor access. Via Realtor
Interior balconies are seen from the living spaces. Via RealtorThe kitchen. Via RealtorThe study. Via RealtorBedrooms have sweeping oceanfront views. Via Realtor
A dressing room. Via Realtor One of 7½ bathrooms. Via Realtor
Exterior amenities include an oceanside pool, a pool house and extensive terraces.
The estate is just one of many Lily Pond Lane addresses that have hit the market in recent years. Businessman Ron Perelman listed his home on Lily Pond Lane last summer, and actress Candice Bergen listed her Hamptons home on the same street in December.
In 2016, hedge-funder Scott Bommer, who founded SAB Capital and is currently the senior managing director of Blackstone, sold three Lily Pond Lane properties in the Hamptons for $110 million in an off-market deal.
Ed Petrie of Compass has the listing.
The driving trail leading up to the property. Via Realtor
From the abyss of an economy-stopping global pandemic, the U.S. real estate market has emerged as arguably the hottest market in the world. Low-interest rates and a future of working from home, or at least more flexible office arrangements, caused many Americans to relocate to suburban areas with lower costs and a higher quality of life. The pandemic-driven shifts ignited a residential housing boom and novel financial technology played a huge role in the surging market. Among private technology companies, startups targeting the inefficiencies and headaches of the real estate market are surging in value and growing at staggering rates. The process of getting a mortgage has long been considered a tedious slog of paperwork, and there have been few innovations to introduce young Americans to homeownership since the advent of the mortgage bond.
Well-funded startups, including the four on the latest Forbes Fintech 50 list, have stepped up to address this demand, with innovative technology that’s simplifying and opening the real estate market to a new generation. Our Fintech 50 list highlights companies like Blend Labs, with its white-label software that allows mortgages at some of America’s biggest banks to be done in just a few clicks, and Divvy Homes, a landlord that wants to help its tenants become owners. These companies are using technology to redesign the experience of buying, selling and owning property.
Overall, through the use of new technology, there has never been lower friction to buying a home and the transaction costs across the market have plummeted. The pandemic-plagued year also was an opportunity for some innovative former Fintech 50 list members to join public stock markets, including Opendoor Technologies, a so-called iBuyer of homes that went public in December 2020 and now carries a $10 billion valuation.
Here are the financial technology companies revolutionizing the real estate market that made the Forbes Fintech 50 in 2021, including a brief description of what they do, who their users are and how much they’re worth.
Cloud-based white label software speeds up the mortgage approval process at the nation’s largest lenders, including Wells Fargo and U.S. Bank. Prospective borrowers can link to online bank statements, tax returns and pay stubs. The platform processes over $4 billion in mortgages and consumer loans per day in partnership with 285 institutions.
Funding: $685 million from Coatue, Tiger Global Management and others
Latest valuation: $3.3 billion
Bona fides: Customer base accounts for more than 25% of the $2.1 trillion U.S. mortgage market by origination volume, according to HMDA data; last year it processed $1.4 trillion in loans, more than double 2019’s volume.
Cofounders: CEO Nima Ghamsari, 35; former CTO Eugene Marinelli, 33; former CFO Erin Collard, 41; Rosco Hill, 41
Cadre
Cadre’s CEO and co-founder Ryan Williams. (Photo by Noam Galai/Getty Images for TechCrunch) GETTY
Headquarters: New York City, NY
By raising money online and using advanced data analysis to source deals, the online platform enables individual and institutional investors to buy and sell stakes in commercial and multifamily real estate partnerships at lower fees. Also runs a StubHub-like secondary market enabling investors to sell otherwise illiquid holdings.
Funding: $155 million from Andreessen Horowitz, Ford Foundation, Goldman Sachs and others
Latest valuation: $800 million, according to PitchBook
Bona fides: Launched a $400 million fund this year oriented to individual investors, financial advisors and institutions.
Cofounders: CEO Ryan Williams, 33, a 30 Under 30 alum who started investing in real estate while at Harvard; brothers Joshua Kushner, 35, and Jared Kushner, 40, the son-in-law of former President Donald Trump.
Divvy Homes
Divvy Homes CEO and co-founder Adena Hefets. (Courtesy of Divvy Homes) DIVVY HOMES
Headquarters: San Francisco, CA
A digital version of the old rent-to-own model, Divvy buys homes for clients who can’t qualify for a standard mortgage and then becomes their landlord. A 1-2% upfront fee and a portion of monthly rent can be converted into a down payment if the tenant wants to buy later. By the end of three years, customers will have built up as much as 10% equity.
Funding: $175 million in equity from Tiger Global Management, Andreessen Horowitz and others
Latest valuation: $490 million, according to PitchBook
Bona fides: In 2020, expanded from 8 to 16 markets and so far this year, has closed more homes than in all of 2020 or 2019.
Cofounders: CEO Adena Hefets, 34; CTO Nicholas Clark, 38; board member Brian Ma, 35; senior software engineer Alex Klarfeld, 30, a 30 Under 30 alum
Roofstock
Roofstock’s CEO and cofounder Gary Beasley. (Courtesy of Roofstock)
Headquarters: Oakland, CA
Real estate investment marketplace that allows everyone from first-time investors to global asset managers to evaluate, purchase and own single-family rental homes. Roofstock One, launched in 2019, sells partial stakes in professionally managed homes for as little as $5,000 a share.
Funding: $153 million from SVB Capital, Canvas Ventures, Khosla Ventures and others
Latest valuation: $600 million
Bona fides: More than $3 billion in transactions have been done through the platform.
Cofounders: CEO Gary Beasley, 55; chairman Gregor Watson, 41; chief development officer Rich Ford, 53
Price growth for larger homes has outpaced apartments’ gains over a decade
Demand for Brooklyn townhouses rose during the pandemic, but the surge wasn’t merely a Covid-driven trend.
Prices for townhouses in the borough have been steadily rising for nearly a decade while the condo and co-op market has remained fairly flat, according to a report from UrbanDigs.
The median sale price for Brooklyn townhouses with three or fewer units is now about $1 million, up 85 percent from 2012, when it was $550,000.
Condo and co-op prices also grew, but less. The median price for a co-op is now $780,000, a 59 percent increase from 2012, when it was $490,000. For condos, the median price is $925,000, up 64 percent from 2012, when it was $565,000.
The difference in growth is in part because the market for Brooklyn has more neighborhoods with moderately priced units, such as Bay Ridge, Bensonhurst and Midwood, which eases competition, said John Walkup, who authored the report.
“These areas also have a large number of buildings built to be rentals, which along with the larger supply of sales units, keeps prices in check,” Walkup said. “The townhouse market, on the other hand, is more constrained for buyers.”
With fewer townhouses available and their supply relatively static, their prices tend to rise more quickly in a strong housing market than those of condos and co-ops. Stately row houses in brownstown neighborhoods such as Park Slope and Cobble Hill routinely go for $4 million or more. One in Brooklyn Heights sold in January for $25.5 million, a record price for a Brooklyn home.
Gerard Splendore, an associate broker at Warburg Realty, remembers selling townhomes in Bay Ridge and Marine Park for $750,000 just after the market collapsed in 2008. Now their asking prices exceed $1 million.
“Everywhere that was kind of the fringes is now highly desirable,” Splendore said. “There’s really nowhere else to go, there’s nowhere else to look. You keep pushing further and further out.”
In northern Brooklyn — a region that includes Bushwick, Williamsburg, East Williamsburg and Greenpoint — the median price for a townhouse has risen 24 percent since 2019, according to UrbanDigs.
Central Brooklyn, including such neighborhoods as Bedford-Stuyvesant, Crown Heights and Flatbush, has seen the townhouse median climb 22 percent in that time.
But it isn’t just the increase in sales prices that has an impact.
Large purchases and renovation projects have a trickle-down effect on buyer confidence, said Ravi Kantha, director of Brooklyn sales at Leslie J. Garfield.
“If you’re shopping with an $8 million budget, that’s a lot of money, but if you know that multiple people are spending $10, $12, $15, $20 [million] down the block, it takes a little bit of that hesitation away,” he said.
“I would bet the average asking prices go up pretty significantly in the next year or two across the board,” said Kantha. “It would just be interesting to see what people are willing to pay for.”
In some neighborhoods, competition is so fierce that many homes are sold before they even hit the market
The number of existing home sales plunged in April, surprising economists who had expected last month’s drop to moderate. Real estate experts say this is an indication that shortages of everything from lumber to kitchen appliances are reverberating throughout an already red-hot market — good news for sellers, but a situation that threatens to price out a growing number of buyers, despite mortgage rates that remain near historic lows.
Existing home sales fell from an annualized 6.01 million to 5.85 million, the National Association of Realtors said on Friday. The consensus had been for a tiny uptick to 6.02 million.
The plunge can be attributed to a lack of inventory, said Nick Bailey, chief customer officer at RE/MAX. It’s a perfect storm for home buyers: Builders are contending with widespread and unprecedented supply chain choke points just as the swelling population of millennials is seeking to transition into larger homes to accommodate families.
“It’s the millennial population driving this market,” Bailey said. “A lot of them are turning to new construction, but because of labor and supply costs, builders are being very deliberate about how quickly or how slowly they bring things onto the market.” The lumber shortage has been well-documented, but there are a host of other supply chain choke points plaguing home builders, from copper for wiring to PVC pipe — even for often taken-for-granted inputs like kitchen appliances.
This combination of factors means that last year’s sharp escalation of home prices is set to continue. According to the National Association of Realtors, the median sales price on an existing-single-family home hit a record $334,500 in March.
“We have a major housing shortage in America,” said Lawrence Yun, the trade group’s chief economist. The problem predated the arrival of Covid-19, he said, and was greatly exacerbated by a sudden influx of buyers seeking more space while locked down in the early months of the pandemic and a shutdown of construction sites, factories and lumber mills.
“Supply chain issues have added several weeks to the time it takes to build a home,” said John Burns, CEO of John Burns Real Estate Consulting. Big builders bid up prices on the items they need for construction and then pass along those costs — and then some — to buyers who are in little position to negotiate given the dearth of available supply, while small builders are often locked out entirely, Burns said.
“Suppliers have to take care of their largest customers first,” he said. “The surge in demand that is allowing builders to push price, and putting even more strain on the supply chain as the demand for materials has surged.”
Even with much of the American economy returning to normal, those aftereffects will continue to have a long tail, experts predicted. Commerce Department data released earlier this week found that the number of housing starts unexpectedly tumbled to an annualized 1.57 million, compared with expectations of about 1.7 million.
“We’ve seen a continuation of appreciation in most markets,” Bailey said. Too many buyers chasing after too few properties is triggering bidding wars, and, in some neighborhoods, competition is so fierce that many homes are sold before they even hit the market, he said.
According to Zillow, nearly half of the people who sold homes last month accepted an offer within a week. “As millennials age into the peak years of homeownership, we expect that the demand for housing will be very strong in the coming years,” said Chris Glynn, Zillow’s principal economist.
While low interest rates are contributing to the continued appreciation, even that can’t always make a mortgage a financial reality for buyers, Glynn said. “The challenge interest rates can’t solve is the one barrier to entry — down payments,” he said. “Prices rising definitely adds to the challenge of coming up with that down payment,” he said. Programs that let buyers put down less than the traditional 20 percent can help, but in some markets, he said, would-be buyers find that this puts the cost of a monthly mortgage payment out of reach.
“Given the housing shortage and strong demand — there’s nothing to suggest home prices will be falling,” Yun said.
Yun suggested that President Joe Biden’s infrastructure plan should incorporate initiatives aimed at getting buyers into homes.
“It’s not a good outcome for the country,” Yun said. “We want to make sure that people who are making financially responsible decisions should have access to homeownership. We need to build more, and more consistently, so home prices come down,” he said.
Cindy Ariosa, senior vice president, regional manager, Long & Foster Real Estate, Chantilly, Virginia; liaison for large firms and industry relations, the National Association of REALTORS® (NAR): 
Shannon McGahn, chief advocacy officer, NAR, Washington, D.C.:
Chris Trapani, co-founder/CEO, Sereno Real Estate, Los Gatos, California: 
Jon Coile, vice president, MLS and Industry Relations, HomeServices of America, Annapolis, Maryland:
